2009 (8) TMI 48 - HC - Income Tax

Payment exceeding Rs. 20,000 in cash business expediency - disallowance In the case on hand, the Tribunal has noted that the payments were made at the insistence of the Sugar Mill from where the purchases were made by the assessee. Purchases were said to have been made from the District Co-operative Sugar Mill, which is a quasi Government concern, and the payments were also made in the branches of the co-operative banks which were located in the concerned Co-operative Sugar Mill. In such circumstances, the conduct of the assessee in having deposited the payment in cash in the branches located in the Co-operative Sugar Mill at the insistence of the concerned Sugar Mill will squarely fall under the expression considerations of business expediency . expenses allowed despite the fact that that payment was made in excess of Rs. 20000 in cash.

Summary

Issues:
- Interpretation of Section 40A(3) regarding disallowance of payments exceeding Rs.20,000 made other than by crossed cheque

Analysis:
The judgment revolves around the interpretation of Section 40A(3) of the Income Tax Act concerning the disallowance of payments exceeding Rs.20,000 made other than by a crossed cheque. The primary issue raised in this appeal was whether the Tribunal was correct in holding that no disallowance under Section 40A(3) could be made in a specific case where payments exceeding the prescribed limit were made in cash due to business expediency. The Court considered the proviso to Section 40A(3), which allows for exceptions based on banking facilities, business expediency, and other relevant factors.

The Court examined the circumstances of the case where the assessee made payments exceeding Rs.20,000 in cash at the insistence of the Co-operative Sugar Mill from where purchases were made. The Tribunal noted that the purchases were from a quasi-Government entity, the District Co-operative Sugar Mill, and the payments were made in branches of cooperative banks located within the Sugar Mill premises. The Court found that the assessee's conduct in depositing cash payments at the insistence of the Sugar Mill fell under the realm of "considerations of business expediency," as specified in the proviso to Section 40A(3).

Both the Commissioner of Income Tax (Appeals) and the Tribunal were convinced of the special circumstances surrounding the case and applied the proviso to Section 40A(3 appropriately. The Court concluded that there was no substantial question of law involved in the appeal, as the application of the proviso was justified based on the specific facts and business expediency considerations. Therefore, the appeal was dismissed, affirming the decisions of the lower authorities.

In essence, the judgment clarifies the application of Section 40A(3) in cases where payments exceeding Rs.20,000 are made in cash due to genuine business requirements, such as in situations where banking facilities and business expediency dictate cash transactions. The Court emphasized the importance of considering the specific circumstances and factors outlined in the proviso to determine whether disallowance under the section is warranted, ultimately upholding the decisions of the lower authorities in this particular case.